Frank,
I share you sentiments exactly. It seems to me (trying to look at the "larger picture") that big $$$$ has been flowing steadily into index funds or index fund stocks for the past year or so.. At what point in time will those companies reach "full" valuation under their most optimistic earnings scenario? This applies to the "blue chips" technology stocks that are part of the index, such as INTC and MSFT.. Another consideration is this: If, for instance, INTC's "fair" target valuation is $ 200/share, what fund manager/investor will purchase shares of INTC when it is trading at $175/share??? Is there enough "buffer" between the stock price and "target' price to reassure the investor of an adequate return??
Perhaps what I find most troublesome is that ONCE money $$$$ starts leaving those index stocks (and it will), it will have a significant impact on the market as a whole and cause further problems for small and mid-cap stocks unless the $$$$ are being rotated into that sector.....The traditional view of the equity money cycle is that the $$$$$ from the big caps eventually rotates into the mid and smaller caps (especially towards the late stages of a bull market). However, I think we are perhaps witnessing some substantive changes in the way the market traditionally operates (i.e. no "January effect" this year at all, although some may argue that the "January effect" took place last November), and I wouldn't be surprised to see the $$$$ bypass the mid and small cap sectors entirely.
Best Regards |
